Land values rising faster than house prices in regional UK cities

Photo: Richard Walker Photography

Competition for residential land in some of the UK’s leading regional cities means that values are rising faster than house prices, according to the latest data from the Savills residential development land index.

Land buyers have focused primarily on well-connected urban sites as developers and investors seek opportunities for house price growth beyond London.

Birmingham, Manchester and Glasgow have seen the highest residential land price growth as Build to Rent, urban regeneration and infrastructure improvement initiatives boost demand.

They all have significant and rising housing shortfalls which is underpinning competition for land. Detailed analysis by Savills over the past 18 months suggests that Birmingham needs 89,000 new homes by 2031, while Glasgow’s shortfall could reach 11,000 by 2021, Manchester 10,000. As a result, residential land values rose by 15 per cent year on year in these cities, compared to house price growth of between 6.3 and 9.4 per cent.

Falling starts in prime central London have reduced demand for land in zone 1 of the capital, but there are signs that land values are finding their level. Having fallen 8.9 per cent in the six months to the end of September 2016, prices stabilised (up 0.1 per cent) over the six months to the end of March 2017.

The major stamp duty overhaul of December 2014 caused prime market house price falls and halted price growth in the central London land market. Prices are now 10.5 per cent down from that point, but still 18.7 per cent above their level 10 years ago.

By contrast, a chronic shortage of new homes at a lower price point is translating into strong demand for land in zones 2-6. Savills estimates that the undersupply of new homes in the sub £700 per square foot London market will likely increase by around 28,500 a year for the next five years at least.

Lucy Greenwood, Savills residential development research analyst, says: “Key regional cities are outperforming other locations meaning the pattern of price growth across the UK’s residential market is not dissimilar to the house price growth map.

“Higher end housebuilders, such as Crest Nicholson and Berkeley Homes, have been seeking development opportunities beyond the South East. There is still interest for sites in the capital’s central zone, however, from international bidders able to exploit the currency advantage and we are also seeing international investors partnering with local developers, where land owners are ready to take a hit on the price they’d have achieved a year ago.”

UK land market picks up as delivery of new homes increases

2nd February 2017

The UK land market is picking up again, as the delivery of new homes is set to increase.

Since the summer, when the market slowed down in the wake of the Brexit vote, the land market has picked up again in “many parts of the UK,” according to Savills, with the number of bids per site notably improving. Land values, as a result, have returned to growth, with urban land value up 1.2 per cent in Q4 2016 and greenfield land value up 0.5 per cent in the same period.

However, there is still caution in some parts of the country which means that larger housebuilders are continuing to bid selectively. In general, land buyers are taking less risk, focussing on oven-ready sites in areas of stronger home buyer and renter demand, close to established residential areas or good infrastructure.

Support from the UK government includes the £3bn Home Building Fund and Help to Buy Equity Loan, now extended to 2021, which are helping to boost construction activity and sentiment. While the availability of labour continues to be a headwind for the sector – 39 per cent of builders now consider it a major constraint, according to a Q3 2016 HBF survey, down from 63 per cent in December 2014 – land availablity will also be a crucial factor.

Indeed, several government measures are designed to bring more land to the market, from a £2bn Accelerated Construction Fund, which aims to deliver 15,000 homes on surplus public sector land, and the announcement of 17 further Garden Towns and Villages, which have the potential to provide almost 200,000 new homes across the country, to the announcement of 30 local authority partnerships that will be the first to build Starter Homes on brownfield sites, backed by the £1.2bn Starter Homes Land Fund.


Prime central London land prices dip

7th June 2016
The price of London development land continues to dip at the start of 2016.

Knight Frank’s latest report highlights the ongoing trend in sliding land prices in the UK, with both prime central London land and greenfield land dipping in value.

In London, prime central development land saw prices rise 50 per cent in the four years to September, but have since cooled, falling 2.7 per cent in the six months since. Prices remain 46 per cent higher than in September 2011, but remain 2.5 per cent below last year.

The decline is occueing in tandem with values for greenfield land in England; while prime central London landprices have fallen for two quarters in a row, greenfield values have fallen for five quarters in a row.

“The development land market reflects the slowing pace of house price growth across prime central London, with values up 1 per cent year-on-year on average,” comments Knight Frank’s Grainne Gilmore. “However, this headline figure masks a highly localised market, with property prices down 7 per cent year-on-year in Knightsbridge and up 7 per cent year on-year in Islington.”

Knight Frank’s index, which is based on the valuations of actual development sites around the country, however, reveals that values continue to climb in outer London and key urban markets.

Indeed, urban brownfield land saw values climbed “strongly”, albeit from a “relatively low base”. This reflects growing activity and “renewed economic vigour” of several key cities across the UK, as well as demand for housing at price points that match buyers’ budgets.

Average English land prices continue to dip

9th November 2015
Average land prices in England for development are continuing to slip, as costs rise and demand dips.

New figures from Knight Frank show that average greenfield development land prices declined 0.2 per cent in the third quarter of 2015, taking the total price drop since the start of the year to 3 per cent – reversing the gains recorded in 2014.

The agency attributes the slowdown to a range of factors, including “more moderate” demand for sits from larger housebuilders, higher material costs and a shortage of labour. The shortage of materials, which was widely cited as a cause of price rises in recent months, is easing, however, according to the latest RICS report.

“Developers are also having to factor in reduced revenues from Registered Providers on the affordable element of schemes after the Chancellor’s announcement in the last Budget that social rents would be cut in the coming years,” notes Grainne Gilmore, Partner at Knight Frank.

“On a short-term basis, the fast-paced policy environment, especially around affordable housing, is causing a degree of ‘limbo’ in the market as developers look for more detail on the Government’s Starter Home initiative.”

Knight Frank says that the policy of delivering 200,000 Starter Homes by 2020 is “still vague”.

In prime central London, price growth in land prices continued to ease, reflecting the slowing growth seen in the sales market.